Transferring products internally at a market price leads to optimal decisions when all of the following conditions are prevalent except ________.
A) the market for the transferred product (intermediate product) is perfectly competitive
B) there are no additional costs to the company from buying in the external market instead of transacting internally
C) the interdependence of subunits is minimal
D) there are additional benefits to the company by selling in the external markets instead of transferring internally

Question

Quizplus · Accepted Answer

Transferring products internally at market price leads to optimal decisions when the external market conditions are favorable and there are no additional costs or benefits affecting the company's internal transactions. The presence of additional benefits by selling in the external markets instead of transferring internally suggests that the internal transfer price might not lead to optimal decisions, as it could incentivize selling externally rather than meeting internal needs, which contradicts the premise of achieving optimal internal resource allocation.

Transferring Products Internally at a Market Price Leads to Optimal